"With inflationary pressure remaining high and with the IMF discouraging the Bank from delaying any further, a change to the base rate is by no means off the table."
The Consumer Price Index rose to 5.1% in the 12 months to November, up from 4.2% a month earlier. The ONS said the contributing factors behind the rise were ‘broad-based’ but transport, especially the cost of petrol, was a big contributor.
On a monthly basis, inflation increased by 0.7% in November 2021, a substantial growth compared with a fall of 0.1% in November 2020.
Derrick Dunne, CEO of YOU Asset Management, commented: “UK inflation blew expectations out of the water this morning, with the CPI reading jumping 5.1% in the twelve months to November (up from 4.2% in October) – months ahead of the IMF’s prediction that we’d reach that level in Spring next year. It’s the highest 12-month reading in over a decade.
“This week, however, inflation itself is not the story. Instead, yesterday’s employment data will be front and centre as the Bank of England meets to discuss tomorrow’s interest rate decision. Doubts about restrictions and their impact on the jobs market have already dashed predictions of a pre-Christmas rase rise. But with inflationary pressure remaining high and with the IMF discouraging the Bank from delaying any further, a change to the base rate is by no means off the table."
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "Faced with such a high inflation reading, and with forecasts that the only way is up, the Bank of England would ordinarily be expected to call time on the cheap money party and raise interest rates. But with the recovery far from being in full swing and the omicron variant an unruly guest, set to knock back confidence further for many sectors, policymakers may be hot and bothered but are likely to stay in wait-and-see mode tomorrow. With a possible Plan C on the cards, and closures of hospitality and retail being considered if hospital admissions soar, as well as a severe income squeeze taking hold, consumer sentiment and spending could take a fresh hit. What is pretty certain is that even if ultra-low rates stay put right now, with prices running so hot, there won’t be an extended lock-in with expectations that February is likely to see rates lift.
"Prices don’t look so transitory right now and seem set to linger for much longer and the Federal Reserve seems much more inclined to bring the cheap money binge to an end. Focus will shift to the Fed’s decision on monetary policy later and with fresh indications that inflation is sizzling hot with producer prices reaching a record annual increase of 9.6% in November, there are expectations that last orders will be called on its mass bond buying programme much sooner, and that an interest rate rise could be brought forward next year. The spread of Omicron is proving a headache to nurse in the US as well, along with ongoing supply chain pains, but with growth much more buoyant than in the UK, withdrawing support doesn’t appear to be quite so much of a dilemma."
Richard Carter, head of fixed interest research at Quilter Cheviot, commented: “Unfortunately for consumers, peak inflation may still be a few months off. Today’s CPI data only serves to increase the pressure on the Bank of England to raise interest rates at its MPC meeting tomorrow.
“However, the Bank of England may well decide that discretion is the better part of valour and instead opt to wait until next year given the current uncertainty surrounding the impact of the Omicron variant on the economy, coupled with the risk that further restrictions may need to be introduced before long.”
Martin Lawrence, director of investments at Wesleyan, added: “Inflation has continued to sail far beyond the Bank of England’s 2% target, with rising hotel and restaurant prices, a tangled supply chain and labour shortages continuing to push it off course.
“The Omicron variant has not caused international markets to plunge into troubled waters yet, but the uncertainty surrounding new variants may cause central banks to pause plans to raise interest rates and, coupled with prolonged inflation, this is a perfect storm for savers who should be considering their options when it comes to growing their hard-earned money.”
